I am a senior editor at Forbes and focus mainly on the business of sports and our annual franchise valuations. I also spend a lot of my time digging into what athletes earn on and off the field of play. I've profiled a bunch of athletes that go by one name: LeBron, Shaq, Danica and others. I also head up our biennial B-School rankings, our list of America's Best Small Companies and our annual features on the Best Places for Business (metros, states and countries). I joined Forbes in 1998 after working 3 years at Financial World magazine.

New Jersey Taxes Could Eat Up All Of Peyton Manning's Super Bowl Earnings

The legacy of Broncos' quarterback Peyton Manning promises to be one of the biggest storylines of the Super Bowl. (AP Photo/Mark Humphrey)

This is a guest post from K. Sean Packard, CPA, who is Director of Tax at OFS. He specializes in tax planning and the preparation of tax returns for pro athletes. He can be reached at sean.packard@ofswealth.com and on Twitter at @AthleteTax.

Peyton Manning has the opportunity to pull a John Elway and ride off into the sunset as a Denver Bronco after winning his second ring, not that he wants to retire. His career will hinge upon an offseason exam on his surgically-repaired neck, according to ESPNESPN’s Chris Mortensen. Obviously, the most important implication of the exam will be Manning’s health. But whether his career continues will have an effect on how much tax New Jersey can collect from him for his appearance in the Super Bowl XLVIII.

Should the Broncos beat the Seahawks, Manning—and the rest of his teammates—will earn $92,000. The loser’s share in the Super Bowl is $46,000. So why does Manning’s future beyond February 2 matter to New Jersey? It would seem logical that the Garden State would apply its tax rates on the $92,000 or $46,000 Manning earns for his week in East Rutherford. Unfortunately, we are dealing with tax laws, not logic.

New Jersey, and every other state that imposes a jock tax, taxes players on their calendar-year income from each employer. If the Broncos defeat the Seahawks, Manning’s 2014 playing income to this point would be $157,000 derived from playoff bonuses. If the Broncos lose, his playing income would be $111,000.

If Manning is unable to continue playing, New Jersey would apply its tax rates to his income and multiply that amount by the ratio of 7/33 to determine his tax liability. The 7 in the numerator represents the week he spends in the state practicing and attending required NFL events. The 33 is the total number of duty days performed during the year—31 days in January plus two in February. If Manning is forced to retire, New Jersey will collect approximately $1,575 from him if the Broncos win and $982 if they lose.

But should Manning continue his career into the 2014 season, New Jersey will collect an additional $45,000 from him by taxing income he has not even earned yet. Manning is due $15 million next season, which would push his 2014 earnings to $15,157,000 or $15,111,000, and bump him into Jersey’s highest 8.97% tax bracket. Luckily, his duty day ratio would go from 7/33 to 7/200, without regard to the Broncos’ game at MetLifeMetLife Stadium against the Jets next season.

If Manning is able to play next season, his New Jersey income tax would be $46,989 on $92,000 for winning the Super Bowl, or 51.08%. If they lose and he is able to play in 2014, he will pay New Jersey $46,844 on his $46,000, which amounts to a 101.83% tax on his actual Super Bowl earnings in the state—and this does not even consider federal taxes!

Because the Broncos play at the Jets next season, Manning’s effective New Jersey tax rate will be more in line with the state’s tax table. He will pay roughly $60,414 if they win the Super Bowl and $60,229 if they lose based on allocable income of $682,065 or $679,995 (9/200 x total 2014 calendar-year pay). However, if the Super Bowl were held anywhere other than New Jersey, he would only be paying them $13,425 or $13,384 for his 2014 game against the Jets.

At this point his only tax-planning tools would be to retire or demand a trade in the offseason. A trade would mean that he will earn his $15 million for a team other than the Broncos, thus saving him about $59,000 in New Jersey taxes. This is because duty days are calculated separately for each team on which he plays. Of course he would have to choose his destination wisely, because there are very few NFL destinations that enjoy lower taxes than Colorado.

I am actually cheering for New Jersey on this one. Not because I want Manning to fund a state-mandated traffic jam, but because football is better with Peyton Manning. I think the residents of Nebraska’s largest city would agree.

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To be fair, Manning would be taxed at this rate in a bunch of states. It is more a function of his high salary (and small playoff earnings) and way the tax code treats earnings of professional athletes.

I was replying to the reader who thought this was a NJ problem, but Manning would be in a similar situation in any state that charges a state income tax. That said his tax would be lower as only a few states have a higher top tax rate than NJ (Hawaii, California, Oregon).

And to be even more “fair”, Manning gets a credit on his home state taxes for taxes paid to other states. But, because New Jersey’s (and other states”) taxes are so high, the credit will be basically limited to the amount of his home state tax (Colorado?).

I’m not cheering for New Jersey – they’re a bunch of tax and spend liberals (including Christie) who are looking to shake down industrious people so they can make themselves look like the savior of the poor.

Fair? What does that mean. Just one of those words progressives use when they cannot tell the truth about something. In New York, between Fed, State, and locval taxes I pay over 50% of my income to feed the beast. And I am NOT making an exhorbitant income.

I don’t think you’re right. In Massachusetts we have a 5% state income tax which applies to everyone. It is not graduated and is 5% of whatever income you receive from work in Massachusetts(period). I think other states have similar laws.

John you may want to talk to a tax expert. If your son is working in PA then by law he should be paying taxes there. Until you know the law you probably should not be taking to the internet to tell the world to take a look at your son’s tax dodge. I know from the past where I lived and worked in different states that I had to file in both. If the state he lives in finds out he could find himself in hot water.